Brazilian market of corn sets new records with adjustment in supply

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         Porto Alegre, March 9, 2021 – Brazil carried some stocks from 2020 to 2021. Such stocks met domestic demand in part of the first two months of this year and even managed to contain an initial price movement. However, as soon as the soybean harvest advanced, freight prices skyrocketed, logistics became more complicated, and the corn supply became narrower. At this point, however, it is visible that part of the consumer sector holds some stocks, but many of them ignored expectations for this first semester and now feed the upward movement in a market with little supply and logistic problems. The lack of consumers’ storage strategy weighs on internal prices now. The delay in the planting of the corn’s second crop only prolongs this supply difficulty by at least another month, and perhaps imports are the solution to meet the demand in some regions until the beginning of the second crop in August.

         Two situations aggravate supply in the first half: the drought-induced losses in the South and pest-induced losses, information not clarified yet by agricultural authorities. The absence of this information in the official figures from the government may be leading consumers to regard the Brazilian market in a distorted way. This distortion leaves stocks low, amid little concern over supply and prices.

         The point is that the soybean harvest is reaching its peak now, with logistic problems and high freight rates. Corn becomes secondary especially with all the delay in the soybean harvest this year. This environment defines for the market those consumers who have longer stocks and those who do not. This is because many consumers come to the market to buy corn amid this logistical situation and with growers already without corn or with little interest in selling.

         The market tried to believe that the removal of import tariffs would solve the domestic price scenario. The market tried to suggest that consumption would be falling, when in fact there is no sign of cut. It tried to ignore production losses in the South and still tries to believe that the summer crop will still come. Erroneous assessments that March would be the peak of the corn harvest in São Paulo or that prices are rising due to the harvest delay, for example, only show the lack of information and the lack of consistency in the strategies of consumers about the reality of their own supply.

         The fact is that the stocks of old corn from 2020 to 2021 have practically been consumed in recent weeks. The practice of emptying warehouses and/or using corn to get liquidity before the soybean harvest is gone. The harvest in much of the west of Brazil’s south has already ended. In São Paulo, early crops have already been reaped and served the market in recent weeks. Mogiana already has a large part of corn plantations reaped. The rest will be in Sorocabana after the soybean harvest. There will also be the crops in Minas Gerais, which usually appear in May/June, as well as the small summer crop in the state.

         However, we have at least 6.5 million tons of domestic demand. Between the harvest and the sale by growers, there is this need for immediate supply, an important combination for price formation. In Rio Grande do Sul, for example, we have a moment of calm, with high but stable prices. However, when soybeans begin to be reaped in April, the corn business flow will drop significantly. If the consumer sector is not prepared in terms of stocks for April to June, the situation experienced in São Paulo will also be seen in the South region. Over-the-counter prices in Paraná last week rose by BRL 2.00/bag, reflecting the decline in stocks and low commitments by growers.

         The rainfall is forecast to decline this week, which may facilitate the harvest and some regional supply. The question is whether growers will continue to sell. With high prices for soybeans, many contracts to be fulfilled and good profitability, it seems unlikely that there will be greater selling pressure on corn. There are also many contracts to be met with summer corn, therefore, the discreet summer crop will not necessarily be enough to meet all demand until July. Perhaps imports are necessary.

         At this point, the situation of delayed planting of the second crop, despite the good progress last week, shows us the real profile of supply ahead. It is clear that there will be harvest in June and in July, because a small portion of crops was planted in Mato Grosso and Paraná in February. The question is whether this volume will be sufficient to meet all demand in a market that will arrive in the second crop eager for the supply of new corn. Remember 2020. The planting was less delayed than that of 2021. However, second-crop corn failed to arrive in July to meet all domestic demand, and prices rose even at harvest.

          The commercialization of the second crop only failed to advance further because growers fear the impact of the climate on a very late planting. Perhaps in May/June, when the weather offers a better horizon for production, growers resume sales. However, despite prices of BRL 70 in Paraná, BRL 60 in Mato Grosso, BRL 65/67 in Mato Grosso do Sul, and BRL 67/70 in Goiás, growers have not boosted sales in the second crop at a greater pace.

         In this composition, corn prices in São Paulo reached BRL 91/92 CIF last week and BRL 85/86 in the interior for physical product. Paraná at BRL 82/85 is practically the same price as in Rio Grande do Sul. Goiás at BRL 75/80 and Mato Grosso still trading the 2020 second crop corn at BRL 68/70. Until the harvest of the second crop, we will have regional summer harvests, climate for Brazil’s second-crop corn and the US corn crop.

         Agência SAFRAS Latam

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